More health care mandates means more money

The law requires health plans to meet minimum standards. Men will pay for health care that offers maternity benefits.

Many provisions in the Affordable Care Act are designed to protect consumers and lower the cost of insurance. Health insurance companies can’t reject someone for coverage for a medical reason and can’t place lifetime limits on medical coverage. The law also limits how much insurers can charge based on age.

But as insurers prepare to implement a law designed to make health coverage affordable, insurance rates are dramatically increasing. And when the Affordable Care Act really takes effect next year, rates are expected to skyrocket. Florida’s insurance commissioner told the Palm Beach Post that he expects rates in the individual market to climb 30% to 40% next year and in the small-group market to increase by 5% to 20%.

In Florida, 11 insurers filed double-digit rate hikes with the state between May 2012 and June 2013. Several of the state’s largest insurers proposed average rate increases for individual policies of between 10% and nearly 16%, according to rate filings with the state. Florida Blue, for instance, received approval in April to raise premiums on nearly 160,000 individual policies by 14.7%.

The cost of conversion policies — health insurance purchased after losing employer coverage — is rising the most, soaring 20% or more for some Florida insurers. Group policies offered by employers are also not immune from these rate hikes, with some rates up a more modest 1.8% while others rising by more than 15%. In rare cases, insurers have filed plans to decrease rates on some group policies, a decision based on the estimated cost of medical care for that employer’s workforce.

“We have seen increases throughout the course of this year and expect those to continue,” says John Lacy, vice president of group benefits for Clearwater-based Bouchard Insurance. Some rates would have risen without the new law, but “we are going to see some of the increase based on health care reform starting in January of 2014, when the law goes into effect.” Employer groups with younger workers may see higher increases than those with older workers, he says, because of restrictions on how much age can be factored into premium costs.

Health insurers say the law is driving rates higher because it doesn’t allow them to make as many of the traditional actuarial distinctions between men and women, and young and old, as they did. The insurers’ inability to charge based on traditional measures of risk drives up cost, as do the law’s minimum standards of care and a standard set of benefits that cover pregnancy, prescriptions and hospital care — for everyone. As a result, for example, men will end up buying policies that cover maternity benefits.

Better benefits equal bigger premiums. In addition, the law’s requirements will limit high-deductible plans that hold down monthly payments. Insurers will face caps on the out-of-pocket costs to consumers.

Before the Affordable Care Act, companies could refuse to sell individual policies to sick people “or price it so high that people can’t afford it,” says Caroline Pearson, vice president at Avalere Health, a Washington, D.C., health care consulting firm. But because the Affordable Care Act prohibits those practices, many older and sicker people will be getting health insurance, forcing premiums higher for everyone, she says. Younger, healthier people will be subsidizing the cost of insuring sicker, older people.

Federal regulators say the law will be effective at keeping premiums affordable. The law sets limits on insurers’ profits and administrative expenses and provides rebates to consumers when insurers exceed those expenses. The federal government will also review rates, and one estimate by Kaiser Family Foundation suggests that one out of every five filings was lowered due to rate reviews. Florida will now have to send its rate filings to the federal government for approval. The law also requires that employers offer “affordable” insurance that costs no more than 9.5% of household income.

In Florida, more than 1.7 million people will be eligible for federal subsidies to offset the cost of insurance. These are typically families with incomes between two and four times the poverty level — between $47,100 and $94,200 for a family of four. “We think about 83% of exchange enrollees will be eligible,” Pearson says.